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Information reporting, catastrophic health coverage

The Treasury Department and IRS today released for publication in the Federal Register a notice of proposed rulemaking (REG-103058-16) concerning information reporting rules for minimal essential coverage and catastrophic health coverage.

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Comments and requests for a public hearing must be received by a date that is 60 days after August 2, 2016 (the scheduled date of publication of the proposed regulations in the Federal Register).

Background

The IRS in September 2015 issued Notice 2015-68 [PDF 37 KB] stating that proposed regulations would be issued under section 6055 relating to information reporting by health insurance issuers and specifically to narrow the relief provided to issuers in Reg. section 1.6055-1(d) by requiring issuers of catastrophic plans to report catastrophic plan coverage on Form 1095-B, effective for coverage in 2016 and returns and statements filed and furnished in 2017.

Catastrophic coverage

The preamble to today’s proposed regulations explains that consistent with the guidance provided by Notice 2015-68, the proposed regulations include the catastrophic coverage requirement but—to allow reporting entities sufficient time to implement these reporting requirements—are proposed to be effective for coverage in 2017 and returns and statements filed and furnished in 2018.

Notice 2015-68 indicated that health insurance issuers could voluntarily report on 2015 catastrophic coverage (on returns and statements filed and furnished in 2016) and were encouraged to make these reports. Notice 2015-68 further provided that an issuer that reported on 2015 catastrophic coverage would not be subject to penalties for these returns.

The preamble to today's proposed regulations states that given the 2017 effective date for reporting of catastrophic coverage provided in the proposed regulations, health insurance issuers similarly may voluntarily report on 2016 catastrophic coverage (on returns and statements filed and furnished in 2017) and are encouraged to provide these reports. An issuer that reports on 2016 catastrophic coverage will not be subject to penalties for these returns.

TIN solicitation

While the taxpayer identification number (TIN) solicitation rules were developed to apply to financial relationships, those rules did not necessarily work well with respect to health care reporting. In response to the request for comments in Notice 2015-68, one commenter requested that the proposed regulations include detailed rules tailored to TIN solicitation for health care information returns required by section 6055. The IRS and Treasury have agreed with the commenter that some modification to the rules in Reg. section 301.6724-1(e) is warranted to account for the differences between information reporting under section 6055 and information reporting under other provisions of the Code. Accordingly, the IRS and Treasury have proposed regulations to provide specific TIN solicitation rules for section 6055 reporting.

The preamble explains that until final regulations are released, reporting entities may rely on these proposed rules and Notice 2015-68. The preamble also includes some additional transition rules that apply to reporting entities in certain situations.

To address differences in the way financial accounts and health coverage are opened, the proposed regulations also change the timing of the first annual solicitation (the second solicitation overall) with respect to missing TINs. Under Reg. section 301.6724-1(e)(1)(ii), a first annual solicitation must be made by December 31 of the year the account is opened (or by January 31 of the following calendar year if the account is opened in December). The timing of the first annual solicitation is dictated by the need to have accurate reporting of information to taxpayers and the IRS in preparation for the filing of an income tax return. Accounts, relationships, and other transactions may be opened or begun throughout the year, and may remain active indefinitely. The preamble states that it is beneficial to the IRS, filers, and taxpayers in the context of accounts, relationships, and other transactions to have a single deadline for the first annual solicitation at the end of the calendar year (or January if the account is opened in December).

By contrast, health coverage is generally offered on an annual basis. While individuals may—depending on their circumstances—enroll in coverage at any point during the year, many covered individuals enroll in coverage during the open enrollment period, which is in advance of the beginning of the coverage year. The most common coverage year is the calendar year, and many individuals enroll late each year for coverage the following year. For such individuals, requiring the first annual solicitation (the second solicitation overall) by December 31 of the year in which the application is received is earlier than is necessary (because reporting is not due until more than a year later) and coincides with the end of a plan year, which is already the busiest time of year for coverage providers.

As explained by today’s release, to address these considerations, the proposed regulations require that the first annual solicitation be made no later than 75 days after the date on which the account was “opened” (i.e., the day the filer received the substantially complete application for coverage), or, if the coverage is retroactive, no later than the 75th day after the determination of retroactive coverage is made.

The deadline for the second annual solicitation (third solicitation overall) remains December 31 of the year following the year the account is opened as required by Reg. section 301.6724-1(e)(1)(iii).

Relief provision

It is explained that taxpayers may rely on these proposed regulations and on Notice 2015-68 until final regulations are published. To provide additional relief and to allow for the requirements for the first annual and second annual solicitations to be satisfied with respect to individuals already enrolled in coverage, an additional rule is provided. Under this rule, if an individual was enrolled in coverage on any day before July 29, 2016, the account is considered opened on July 29, 2016. Accordingly, reporting entities have satisfied the requirement for the initial solicitation with respect to already enrolled individuals so long as they requested enrollee TINs either as part of the application for coverage or at any other point before July 29, 2016.

The deadlines for the first and second annual solicitations are set by reference to the date the account is opened. Thus, the rule that treats all accounts for individuals currently enrolled in coverage for which a TIN has not been provided as opened on July 29, 2016, provides additional time for the annual solicitations as well. Specifically, consistent with Notice 2015-68, the first annual solicitations are to be made at a “reasonable time” after July 29, 2016. For this purpose, a reporting entity that makes the first annual solicitation within 75 days of the initial solicitation will be treated as having made the second solicitation within a reasonable time. Reporting entities that have not made the initial solicitation before July 29, 2016, need to comply with the first annual solicitation requirement by making a solicitation within a reasonable time of July 29, 2016.

Notice 2015-68 also provided that a reporting entity is deemed to have satisfied the initial, first annual, and second annual solicitations for an individual whose coverage was terminated prior to September 17, 2015. The preamble states that taxpayers may continue to rely on this rule as well.

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